Making the Most Out of Your Rental Investment
Even long term tenants move on at some point, or maybe you have been unfortunate with a string of short term tenancies making it difficult for you to fully profit from your rental investment. Unfortunately we don't get to choose the market in which our property will become available. Vacant rental properties affect your overall annual income. For every week that your property is vacant your annual return is affected.
Everyone wants to get the best return they can for their rental investment. The loss incurred by hanging on for an extra five or ten dollar increase per week may reduce your annual income by more than 2%. For example you may have a prospective tenant who offers you $550.00 per week, but the vacating tenant was paying $565.00 per week. Declining that applicant and having your property vacant for an extra 3 weeks chasing the higher rent, means you are losing out on not just $15.00 over 3 weeks, but $1080.00. That's a huge loss!
Know your current market and let it guide you in your rental investment decision. How much are other properties in the area achieving now? How long are they staying on the market before being let? Pricing your property slightly lower than those available, may mean a shorter vacancy period in a tough market.
For example, if you're looking for a profitable area, two hours North of Sydney (by car) you'll find beautiful Newcastle gazing out to the Tasman Sea. Newcastle has 46 properties available for rent and 59 properties for sale. Median property prices over the last year range from $1,125,000 for houses to $705,000 for units. If you are looking for an investment property, consider houses in Newcastle rent out for $600 PW with an annual rental yield of 2.8% and units rent for $513 PW with a rental yield of 3.8%. Based on five years of sales, Newcastle has seen a compound growth rate of 5.9% for houses and 5.5% for units.
You may have been fortunate in the past and received higher than average returns. Your property is only worth as much as someone is willing to pay. The market is not your only variable but the circumstances of the applicant themselves. A business couple transferring from a larger city for example may be willing to pay more than average rent, as it is much lower than what they are used to paying. However, a middle class family moving from within the area may not have the financial capacity to pay more.
Have your property appraised by an experienced property manager who works and knows the market. But most importantly, don't price yourself out of the market!